form10qseptember302011.htm
 
 

 

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------

FORM 10-Q

[x] QUARTERLY REPORT UNDER SECTION 13 OF 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2011

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT


GREENE COUNTY BANCORP, INC.

(Exact name of registrant as specified in its charter)

Commission file number  0-25165


                                                                                        United States                                                                                                           14-1809721
                                      (State or other jurisdiction of incorporation or organization)                                                     (I.R.S. Employer  Identification Number)

                                                                                          302 Main Street, Catskill, New York                                                               12414
                                                                                       (Address of principal executive office)                                                           (Zip code)


                                                                                                            Registrant's telephone number, including area code: (518) 943-2600

Check whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes:       X            No:  _____

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  
Yes:       X            No:  _____

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer   _____                                                                           Accelerated filer _____
Non-accelerated filer     _____                                                                           Smaller reporting company       X     

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes:              No:     X     

As of November 14, 2011, the registrant had 4,148,628 shares of common stock outstanding at $ .10 par value per share.

 
 

 


 
GREENE COUNTY BANCORP, INC.
     
         
         
         
 
INDEX
     
         
         
         
PART I.
FINANCIAL INFORMATION
     
     
Page
 
Item 1.
Financial Statements (unaudited)
     
 
*   Consolidated Statements of Financial Condition
   
 
*   Consolidated Statements of Income
   
 
*   Consolidated Statements of Comprehensive Income
   
 
*   Consolidated Statements of Changes in Shareholders’ Equity
   
 
*   Consolidated Statements of Cash Flows
   
 
*   Notes to Consolidated Financial Statements
   
         
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
   
         
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
   
         
Item 4.
Controls and Procedures
   
         
PART II.
OTHER INFORMATION
     
         
Item 1.
Legal Proceedings
   
         
Item 1A.
Risk Factors
   
         
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
   
         
Item 3.
Defaults Upon Senior Securities
   
         
Item 4.
[Removed and Reserved]
   
         
Item 5.
Other Information
   
         
Item 6.
Exhibits
   
         
 
Signatures
   
 
   Exhibit 31.1 302 Certification of Chief Executive Officer
   Exhibit 31.2 302 Certification of Chief Financial Officer
   Exhibit 32.1 906 Statement of Chief Executive Officer
   Exhibit 32.2 906 Statement of Chief Financial Officer
   Exhibit 101 Extensible Business Reporting Language (XBRL)
   

 
 









Greene County Bancorp, Inc.
Consolidated Statements of Financial Condition
As of September 30, 2011 and June 30, 2011
(Unaudited)
(In thousands, except share and per share amounts)

ASSETS
 
September 30, 2011 
   
June 30, 2011
 
Cash and due from banks
  $ 24,287     $ 9,245  
Federal funds sold
    890       721  
    Total cash and cash equivalents
    25,177       9,966  
                 
Securities available for sale, at fair value
    80,673       90,117  
Securities held to maturity, at amortized cost
    122,085       124,177  
Federal Home Loan Bank stock, at cost
    1,273       1,916  
                 
Loans
    312,024       305,620  
  Allowance for loan losses
    (5,453 )     (5,069 )
  Unearned origination fees and costs, net
    399       495  
    Net loans receivable
    306,970       301,046  
                 
Premises and equipment
    15,244       15,407  
Accrued interest receivable
    2,740       2,716  
Foreclosed real estate
    243       443  
Prepaid expenses and other assets
    1,980       1,737  
               Total assets
  $ 556,385     $ 547,525  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Noninterest bearing deposits
  $ 50,740     $ 49,313  
Interest bearing deposits
    441,254       420,584  
    Total deposits
    491,994       469,897  
                 
Borrowings from FHLB, short-term
    ---       14,300  
Borrowings from FHLB, long-term
    12,000       12,000  
Accrued expenses and other liabilities
    2,882       3,247  
                Total liabilities
    506,876       499,444  
                 
Shareholders’ equity:
               
Preferred stock,
               
  Authorized   -   1,000,000 shares; Issued - None
    ---       ---  
Common stock, par value $.10 per share;
               
   Authorized  - 12,000,000 shares
               
   Issued          -   4,305,670 shares
               
   Outstanding -   4,145,828 shares at September 30, 2011
               
                            and June 30, 2011;
    431       431  
Additional paid-in capital
    11,020       11,001  
Retained earnings
    38,523       37,336  
Accumulated other comprehensive income
    741       519  
Treasury stock, at cost 159,842 shares at September 30, 2011
               
                                     and June 30, 2011
    (1,206 )     (1,206 )
               Total shareholders’ equity
    49,509       48,081  
               Total liabilities and shareholders’ equity
  $ 556,385     $ 547,525  
See notes to consolidated financial statements.

 
 

 

         Greene County Bancorp, Inc.
Consolidated Statements of Income
For the Three Months Ended September 30, 2011 and 2010
(Unaudited)
(In thousands, except share and per share amounts)
   
2011
   
2010
 
Interest income:
           
    Loans
  $ 4,468     $ 4,537  
    Investment securities - taxable
    245       271  
    Mortgage-backed securities
    1,186       882  
    Investment securities - tax exempt
    305       284  
    Interest bearing deposits and federal funds sold
    1       2  
Total interest income
    6,205       5,976  
                 
Interest expense:
               
    Interest on deposits
    887       1,030  
    Interest on borrowings
    119       149  
Total interest expense
    1,006       1,179  
                 
Net interest income
    5,199       4,797  
Provision for loan losses
    474       353  
Net interest income after provision for loan losses
    4,725       4,444  
                 
Noninterest income:
               
    Service charges on deposit accounts
    616       567  
    Debit card fees
    338       297  
    Investment services
    75       78  
    E-commerce fees
    30       30  
    Net gain on sale of available-for-sale securities
    11       ---  
    Other operating income
    144       128  
Total noninterest income
    1,214       1,100  
                 
Noninterest expense:
               
    Salaries and employee benefits
    2,007       1,917  
    Occupancy expense
    318       303  
    Equipment and furniture expense
    145       144  
    Service and data processing fees
    371       343  
    Computer software, supplies and support
    81       71  
    Advertising and promotion
    36       101  
    FDIC insurance premiums
    90       143  
    Legal and professional fees
    182       159  
    Other
    428       347  
Total noninterest expense
    3,658       3,528  
                 
Income before provision for income taxes
    2,281       2,016  
Provision for income taxes
    772       692  
Net income
  $ 1,509     $ 1,324  
                 
Basic EPS
  $ 0.36     $ 0.32  
Basic average shares outstanding
    4,145,828       4,121,299  
Diluted EPS
  $ 0.36     $ 0.32  
Diluted average shares outstanding
    4,190,151       4,152,082  
Dividends per share
  $ 0.175     $ 0.175  
See notes to consolidated financial statements.


 Greene County Bancorp, Inc.
Consolidated Statements of Comprehensive Income
For the Three Months Ended September 30, 2011 and 2010
(Unaudited)
(In thousands)


   
2011
   
2010
 
             
Net income
  $ 1,509     $ 1,324  
                 
Other comprehensive income:
               
Securities:
               
Unrealized holding gains on available for sale securities, arising
               
  during the three months ended September 30, 2011 and 2010,
               
  net of income taxes of $135 and $188, respectively.
    215       299  
                 
  Reclassification adjustment for gain on sale of available-for-sale securities
               
    realized in net income, net of income taxes of ($4) and $--, respectively
    (7 )     ---  
                 
  Accretion of unrealized loss on securities transferred to held-to-maturity,
               
    net of income taxes of $6 and $8, respectively
    10       12  
                 
Pension, actuarial gain, net of income tax of $2 and $2
    4       4  
                 
Other comprehensive income
    222       315  
                 
Comprehensive income
  $ 1,731     $ 1,639  
See notes to consolidated financial statements.



 
 

 


Greene County Bancorp, Inc.
Consolidated Statements of Changes in Shareholders’ Equity
For the Three Months Ended September 30, 2011 and 2010
(Unaudited)
(In thousands)


                     
Accumulated
             
         
             Additional
         
Other
         
      Total
 
   
                Common
   
             Paid – In
   
               Retained
   
    Comprehensive
   
               Treasury
   
       Shareholders’
 
   
                Stock
   
             Capital
   
               Earnings
   
    Income
   
             Stock
   
       Equity
 
                                     
Balance at
                                   
June 30, 2010
  $ 431     $ 10,666     $ 33,692     $ 1,123     $ (1,409 )   $ 44,503  
                                                 
Stock options exercised
            21                       33       54  
                                                 
Tax effect of stock options exercised
            (1 )                             (1 )
                                                 
Stock options compensation
            56                               56  
                                                 
Dividends declared
                    (318 )                     (318 )
                                                 
Net income
                    1,324                       1,324  
                                                 
Total other comprehensive income, net of taxes
                            315               315  
Balance at
                                               
September 30, 2010
  $ 431     $ 10,742     $ 34,698     $ 1,438     $ (1,376 )   $ 45,933  
Balance at
June 30, 2011
  $ 431     $ 11,001     $ 37,336     $ 519     $ (1,206 )   $ 48,081  
                                                 
Stock options compensation
            19                               19  
                                                 
Dividends declared
                    (322 )                     (322 )
                                                 
Net income
                    1,509                       1,509  
                                                 
Total other comprehensive income, net of taxes
                            222               222  
Balance at
                                               
September 30, 2011
  $ 431     $ 11,020     $ 38,523     $ 741     $ (1,206 )   $ 49,509  
                                                 

See notes to consolidated financial statements.

 
 

 

Greene County Bancorp, Inc.
Consolidated Statements of Cash Flows
For the Three Months Ended September 30, 2011 and 2010
(Unaudited)
(In thousands)
2011
 
2010
Cash flows from operating activities:
     
Net Income
$1,509
 
$1,324
Adjustments to reconcile net income to net cash provided by operating activities:
     
     Depreciation
206
 
195
     Net amortization of premiums and discounts
259
 
253
     Net amortization of deferred loan costs and fees
63
 
42
     Provision for loan losses
474
 
353
     Stock option compensation
19
 
56
     Net gain on sale of available-for-sale securities
(11)
 
---
     Loss on sale of foreclosed real estate
50
 
---
     Net (decrease) increase in accrued income taxes
(313)
 
26
     Net increase in accrued interest receivable
(24)
 
(115)
     Net decrease (increase) in prepaid and other assets
56
 
(7)
     Net decrease in other liabilities
(485)
 
(74)
          Net cash provided by operating activities
1,803
 
2,053
       
Cash flows from investing activities:
     
   Securities available-for-sale:
     
     Proceeds from maturities
5,440
 
4,042
     Proceeds from sale of securities
770
 
---
     Purchases of securities
---
 
(3,999)
     Principal payments on securities
3,482
 
2,266
   Securities held-to-maturity:
     
     Proceeds from maturities
5,831
 
4,391
     Purchases of securities
(5,972)
 
(8,513)
     Principal payments on securities
2,093
 
1,036
   Net redemption of Federal Home Loan Bank Stock
643
 
409
   Net increase in loans receivable
(6,704)
 
(4,407)
   Proceeds from sale of foreclosed real estate
393
 
---
   Purchases of premises and equipment
(43)
 
(240)
          Net cash provided by (used in) investing activities
5,933
 
(5,015)
       
Cash flows from financing activities:
     
     Net decrease in short-term FHLB advances
(14,300)
 
(9,100)
     Payment of cash dividends
(322)
 
(318)
     Proceeds from stock options exercised
---
 
54
     Net increase in deposits
22,097
 
41,712
          Net cash provided by financing activities
7,475
 
32,348
       
Net increase in cash and cash equivalents
15,211
 
29,386
Cash and cash equivalents at beginning of period
9,966
 
9,643
Cash and cash equivalents at end of period
$25,177
 
$39,029
       
Non-cash investing activities:
     
   Foreclosed loans transferred to foreclosed real estate
$243
 
$200
Cash paid during the period:
     
   Interest
$1,004
 
$1,183
   Income taxes
1,084
 
666
See notes to consolidated financial statements.
     

 
 

 

Greene County Bancorp, Inc.
Notes to Consolidated Financial Statements
As of and for the Three Months Ended September 30, 2011 and 2010


(1)  Basis of Presentation

The accompanying consolidated statement of financial condition as of June 30, 2011 was derived from the audited consolidated financial statements of Greene County Bancorp, Inc. (the “Company”) and its wholly owned subsidiary, The Bank of Greene County (the “Bank”) and the Bank’s wholly owned subsidiary, Greene County Commercial Bank.  The consolidated financial statements at and for the three months ended September 30, 2011 and 2010 are unaudited.

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X.  Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements.  To the extent that information and notes required by GAAP for complete financial statements are contained in or are consistent with the audited financial statements incorporated by reference to Greene County Bancorp, Inc.’s Annual Report on Form 10-K for the year ended June 30, 2011, such information and notes have not been duplicated herein.  In the opinion of management, all adjustments (consisting of only normal recurring items) necessary for a fair presentation of the financial position and results of operations and cash flows at and for the periods presented have been included.   Amounts in the prior year’s consolidated financial statements have been reclassified whenever necessary to conform to the current year’s presentation.  These reclassifications, if any, had no effect on net income or retained earnings as previously reported.  All material inter-company accounts and transactions have been eliminated in the consolidation. The results of operations and other data for the three months ended September 30, 2011 are not necessarily indicative of results that may be expected for the entire fiscal year ending June 30, 2012.   These consolidated financial statements consider events that occurred through the date the consolidated financial statements were issued.

CRITICAL ACCOUNTING POLICIES

Greene County Bancorp, Inc.’s critical accounting policies relates to the allowance for loan losses and the evaluation of securities for other-than-temporary impairment.  The allowance for loan losses is based on management’s estimation of an amount that is intended to absorb losses in the existing portfolio.  The allowance for loan losses is established through a provision for losses based on management’s evaluation of the risk inherent in the loan portfolio, the composition of the portfolio, specific impaired loans and current economic conditions.  Such evaluation, which includes a review of all loans for which full collectibility may not be reasonably assured, considers among other matters, the estimated net realizable value or the fair value of the underlying collateral, economic conditions, historical loan loss experience, management’s estimate of probable credit losses and other factors that warrant recognition in providing for the allowance of loan losses.  However, this evaluation involves a high degree of complexity and requires management to make subjective judgments that often require assumptions or estimates about highly uncertain matters.  This critical accounting policy and its application are periodically reviewed with the Audit Committee and the Board of Directors.

Securities are evaluated for other-than-temporary impairment by performing periodic reviews of individual securities in the investment portfolio.  Greene County Bancorp, Inc. makes an assessment to determine whether there have been any events or economic circumstances to indicate that a security on which there is an unrealized loss is impaired on an other-than-temporary basis.  The Company considers many factors, including the severity and duration of the impairment; the intent and ability of the Company to hold the equity security for a period of time sufficient for a recovery in value; recent events specific to the issuer or industry; and for debt securities, intent to sell the security, the likelihood to be required to sell the security before it recovers the entire amortized cost, external credit ratings and recent downgrades.  The Company is required to record other-than-temporary impairment charges through earnings, if it has the intent to sell, or will more likely than not be required to sell an impaired debt security before a recovery of its amortized cost basis.  In addition, the Company is required to record other-than-temporary impairment charges through earnings for the amount of credit losses, regardless of the intent or requirement to sell.  Credit loss is measured as the difference between the present value of an impaired debt security’s cash flows and its amortized cost basis.  Non-credit related impairment must be recorded as decreases to accumulated other comprehensive income as long as the Company has no intent or requirement to sell an impaired security before a recovery of amortized cost basis.
 
(2)      Nature of Operations

Greene County Bancorp, Inc.’s primary business is the ownership and operation of its two banking subsidiaries.  The Bank of Greene County has eleven full-service offices and an operations center located in its market area consisting of Greene County, Columbia County and southern Albany County, New York.    The Bank of Greene County is primarily engaged in the business of attracting deposits from the general public in The Bank of Greene County’s market area, and investing such deposits, together with other sources of funds, in loans and investment securities.  Greene County Commercial Bank’s primary business is to attract deposits from and provide banking services to local municipalities.
 
(3)  Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the assessment of other-than-temporary security impairment.

While management uses available information to recognize losses on loans, future additions to the allowance for loan losses (the “Allowance”) may be necessary, based on changes in economic conditions, asset quality or other factors.  In addition, various regulatory authorities, as an integral part of their examination process, periodically review our Allowance.  Such authorities may require the Company to recognize additions to the Allowance based on their judgments of information available to them at the time of their examination.

Greene County Bancorp, Inc. makes an assessment to determine whether there have been any events or economic circumstances to indicate that a security on which there is an unrealized loss is impaired on an other-than-temporary basis.  The Company considers many factors including the severity and duration of the impairment; the intent and ability of the Company to hold the security for a period of time sufficient for a recovery in value; recent events specific to the issuer or industry; and for debt securities, intent to sell the security, whether it is more likely than not we will be required to sell the security before recovery, whether loss of the entire amortized cost is expected, external credit ratings and recent downgrades.  Securities on which there is an unrealized loss that is deemed to be other-than-temporary are written down to fair value.


(4)  Securities

Securities at September 30, 2011 consisted of the following:
   
 
   
Gross
   
Gross
   
Estimated
 
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
(In thousands)
 
Cost
   
Gains
   
Losses
   
Value
 
Securities available-for-sale:
                       
  U.S. government sponsored enterprises
  $ 20,883     $ 397     $ 7     $ 21,273  
  State and political subdivisions
    6,378       220       ---       6,598  
  Mortgage-backed securities-residential
    26,951       726       1       27,676  
  Mortgage-backed securities-multi-family
    17,896       801       ---       18,697  
  Asset-backed securities
    23       ---       1       22  
  Corporate debt securities
    6,117       225       47       6,295  
Total debt securities
    78,248       2,369       56       80,561  
  Equity and other securities
    67       45       ---       112  
Total securities available-for-sale
    78,315       2,414       56       80,673  
Securities held-to-maturity:
                               
  U.S. treasury securities
    11,054       102       ---       11,156  
  U.S. government sponsored enterprises
    997       37       ---       1,034  
  State and political subdivisions
    35,022       310       14       35,318  
  Mortgage-backed securities-residential
    55,237       2,114       18       57,333  
  Mortgage-backed securities-multi-family
    19,346       98       28       19,416  
  Other securities
    429       ---       ---       429  
Total securities held-to-maturity
    122,085       2,661       60       124,686  
Total securities
  $ 200,400     $ 5,075     $ 116     $ 205,359  


Securities at June 30, 2011 consisted of the following:
   
 
   
Gross
   
Gross
   
Estimated
 
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
(In thousands)
 
Cost
   
Gains
   
Losses
   
Value
 
Securities available-for-sale:
                       
  U.S. government sponsored enterprises
  $ 25,909     $ 171     $ 377     $ 25,703  
  State and political subdivisions
    6,819       243       ---       7,062  
  Mortgage-backed securities-residential
    28,214       773       73       28,914  
  Mortgage-backed securities-multi-family
    20,184       912       ---       21,096  
  Asset-backed securities
    24       ---       1       23  
  Corporate debt securities
    6,881       325       ---       7,206  
Total debt securities
    88,031       2,424       451       90,004  
  Equity and other securities
    67       46       ---       113  
Total securities available-for-sale
    88,098       2,470       451       90,117  
Securities held-to-maturity:
                               
  U.S. treasury securities
    11,062       70       ---       11,132  
  U.S. government sponsored enterprises
    997       30       ---       1,027  
  State and political subdivisions
    34,933       200       9       35,124  
  Mortgage-backed securities-residential
    57,347       1,737       35       59,049  
  Mortgage-backed securities-multi-family
    19,434       47       14       19,467  
  Other securities
    404       2       ---       406  
Total securities held-to-maturity
    124,177       2,086       58       126,205  
Total securities
  $ 212,275     $ 4,556     $ 509     $ 216,322  

The following table shows fair value and gross unrealized losses, aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2011.

   
Less Than 12 Months
   
More Than 12 Months
   
Total
 
   
Fair
   
Unrealized
   
Fair
   
Unrealized
   
Fair
   
Unrealized
 
(In thousands)
 
Value
   
Losses
   
Value
   
Losses
   
Value
   
Losses
 
Securities available-for-sale:
                                   
  U.S. government sponsored enterprises
  $ 1,043     $ 7     $ ---     $ ---     $ 1,043     $ 7  
  Mortgage-backed security-residential
    983       1       ---       ---       983       1  
  Asset-backed securities
    ---       ---       22       1       22       1  
  Corporate debt securities
    972       47       ---       ---       972       47  
Total securities available-for-sale
    2,998       55       22       1       3,020       56  
Securities held-to-maturity:
                                               
  State and political subdivisions
    1,008       14       ---       ---       1,008       14  
  Mortgage-backed securities-residential
    3,781       18       ---       ---       3,781       18  
  Mortgage-backed securities-multifamily
    7,969       28       ---       ---       7,969       28  
Total securities held-to-maturity
    12,758       60       ---       ---       12,758       60  
Total securities
  $ 15,756     $ 115     $ 22     $ 1     $ 15,778     $ 116  

The following table shows fair value and gross unrealized losses, aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2011.

   
Less Than 12 Months
   
More Than 12 Months
   
Total
 
   
Fair
   
Unrealized
   
Fair
   
Unrealized
   
Fair
   
Unrealized
 
(In thousands)
 
Value
   
Losses
   
Value
   
Losses
   
Value
   
Losses
 
Securities available-for-sale:
                                   
  U.S. government sponsored enterprises
  $ 13,446     $ 377     $ ---     $ ---     $ 13,446     $ 377  
  Mortgage-backed security-residential
    6,571       73       ---       ---       6,571       73  
  Asset-backed securities
    ---       ---       22       1       22       1  
Total securities available-for-sale
    20,017       450       22       1       20,039       451  
Securities held-to-maturity:
                                               
  State and political subdivisions
    1,610       9       ---       ---       1,610       9  
  Mortgage-backed securities-residential
    7,680       35       ---       ---       7,680       35  
  Mortgage-backed securities-multifamily
    10,670       14       ---       ---       10,670       14  
Total securities held-to-maturity
    19,960       58       ---       ---       19,960       58  
Total securities
  $ 39,977     $ 508     $ 22     $ 1     $ 39,999     $ 509  

At September 30, 2011, there was one security which has been in a continuous unrealized loss position for more than 12 months and 23 securities with a continuous unrealized loss position of less than 12 months.    When the fair value of a held to maturity or available for sale security is less than its amortized cost basis, an assessment is made as to whether other-than-temporary impairment (“OTTI”) is present.  The Company considers numerous factors when determining whether a potential OTTI exists and the period over which the debt security is expected to recover.  The principal factors considered are (1) the length of time and the extent to which the fair value has been less than the amortized cost basis, (2) the financial condition of the issuer (and guarantor, if any) and adverse conditions specifically related to the security, industry or geographic area, (3) failure of the issuer of the security to make scheduled interest or principal payments, (4) any changes to the rating of the security by a rating agency, and (5) the presence of credit enhancements, if any, including the guarantee of the federal government or any of its agencies.

For debt securities, OTTI is considered to have occurred if (1) the Company intends to sell the security, (2) it is more likely than not the Company will be required to sell the security before recovery of its amortized cost basis, or (3) if the present value of expected cash flows is not sufficient to recover the entire amortized cost basis.  In determining the present value of expected cash flows, the Company discounts the expected cash flows at the effective interest rate implicit in the security at the date of acquisition.  In estimating cash flows expected to be collected, the Company uses available information with respect to security prepayment speeds, default rates and severity.  In determining whether OTTI has occurred for equity securities, the Company considers the applicable factors described above and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

For debt securities, credit-related OTTI is recognized in income while noncredit related OTTI on securities not expected to be sold is recognized in other comprehensive income (“OCI”).  Credit-related OTTI is measured as the difference between the present value of an impaired security’s expected cash flows and its amortized cost basis.  Noncredit-related OTTI is measured as the difference between the fair value of the security and its amortized cost less any credit-related losses recognized.  For securities classified as held to maturity, the amount of OTTI recognized in OCI is accreted to the credit-adjusted expected cash flow amounts of the securities over future periods.  For equity securities, the entire amount of OTTI is recognized in income.  Management evaluated securities considering the factors as outlined above, and based on this evaluation the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2011.  Management believes that the reasons for the decline in fair value are due to interest rates and widening credit spreads at the end of the quarter

During the quarter ended September 30, 2011 the Company sold $759,000 of corporate debt securities within its available-for-sale portfolio at a gain of $11,000.   No losses were recognized during the quarter ended September 30, 2011.  During the quarter ended September 30, 2010, there were no sales of available-for-sale or held-to-maturity securities.   There was no other-than-temporary impairment loss recognized during the quarters ended September 30, 2011 and 2010.

The estimated fair values of debt securities at September 30, 2011, by contractual maturity are shown below.  Expected maturities may differ from contractual maturities, because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

         
            After
   
              After
             
   
                 In
   
             One Year
   
Five Years
             
   
One Year
   
             Through
   
              Through
   
               After
       
   
               Or Less
   
Five Years
   
Ten Years
   
Ten Years
   
Total
 
(In thousands)
                             
Securities available-for-sale:
                             
  U.S. Government sponsored enterprises
  $ ---     $ 13,451     $ 5,821       2,001     $ 21,273  
  State and political subdivisions
    1,161       5,437       ---       ---       6,598  
  Mortgage-backed securities-residential
    36       2,926       4,062       20,652       27,676  
  Mortgage-backed securities-multi-family
    2,704       15,993       ---       ---       18,697  
  Asset-backed securities
    ---       ---       ---       22       22  
  Corporate debt securities
    1,058       1,837       3,400       ---       6,295  
Total debt securities
    4,959       39,644       13,283       22,675       80,561  
  Equity securities
    ---       ---       ---       112       112  
Total securities available-for-sale
    4,959       39,644       13,283       22,787       80,673  
Securities held-to-maturity:
                                       
  U.S. treasury securities
    2,007       9,149       ---       ---       11,156  
  U.S. government sponsored enterprises
    ---       1,034       ---       ---       1,034  
  State and political subdivisions
    7,484       15,700       5,775       6,359       35,318  
  Mortgage-backed securities-residential
    ---       6,503       20,561       30,269       57,333  
  Mortgage-backed securities-multi-family
    401       2,302       16,713       ---       19,416  
  Other securities
    50       1       ---       378       429  
Total securities held-to-maturity
    9,942       34,689       43,049       37,006       124,686  
Total securities
  $ 14,901     $ 74,333     $ 56,332     $ 59,793     $ 205,359  

As of September 30, 2011, securities with an aggregate fair value of $152.7 million were pledged as collateral for deposits in excess of FDIC insurance limits for various municipalities placing deposits with Greene County Commercial Bank.  Greene County Bancorp, Inc. did not participate in any securities lending programs during the quarters ended September 30, 2011 or 2010.

Federal Home Loan Bank Stock

Federal law requires a member institution of the Federal Home Loan Bank (“FHLB”) system to hold stock of its district FHLB according to a predetermined formula.  This stock is restricted in that it can only be sold to the FHLB or to another member institution, and all sales of FHLB stock must be at par.  As a result of these restrictions, FHLB stock is carried at cost.  FHLB stock is held as a long-term investment and its value is determined based on the ultimate recoverability of the par value.  Impairment of this investment is evaluated quarterly and is a matter of judgment that reflects management’s view of the FHLB’s long-term performance, which includes factors such as the following:   its operating performance; the severity and duration of declines in the fair value of its net assets related to its capital stock amount; its commitment to make payments required by law or regulation and the level of such payments in relation to its operating performance; the impact of legislative and regulatory changes on the FHLB, and accordingly, on the members of the FHLB; and its liquidity and funding position.  After evaluating these considerations, Greene County Bancorp, Inc. concluded that the par value of its investment in FHLB stock will be recovered and, therefore, no other-than-temporary impairment charge was recorded during the fiscal quarters ended September 30, 2011 or 2010.
 
(5)  Credit Quality of Loans and Allowance for Loan Losses

Management closely monitors the quality of the loan portfolio and has established a loan review process designed to help grade the quality and profitability of the Company’s loan portfolio.  The credit quality grade helps management make a consistent assessment of each loan relationship’s credit risk.     Consistent with regulatory guidelines, The Bank of Greene County provides for the classification of loans considered being of lesser quality.  Such ratings coincide with the "Substandard," "Doubtful" and "Loss" classifications used by federal regulators in their examination of financial institutions. Generally, an asset is considered Substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. Substandard assets include those characterized by the distinct possibility that the insured financial institution will sustain some loss if the deficiencies are not corrected. Assets classified as Doubtful have all the weaknesses inherent in assets classified Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable. Assets classified as Loss are those considered uncollectible and of such little value that their continuance as assets without the establishment of a full loss reserve and/or charge-off is not warranted. Assets that do not currently expose the insured financial institutions to sufficient risk to warrant classification in one of the aforementioned categories but otherwise possess weaknesses are designated "Special Mention."   Management also maintains a listing of loans designated “Watch.” These loans represent borrowers with declining earnings, strained cash flow, increasing leverage and/or weakening market fundamentals that indicate above average risk.

When The Bank of Greene County classifies problem assets as either Substandard or Doubtful, it generally establishes a specific valuation allowance or "loss reserve" in an amount deemed prudent by management.  General allowances represent loss allowances that have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets.  When The Bank of Greene County identifies problem assets as being impaired, it is required to evaluate whether the Bank will be able to collect all amounts due either through repayments or the liquidation of the underlying collateral.  If it is determined that impairment exists, the Bank is required either to establish a specific allowance for losses equal to the amount of impairment of the assets, or to charge-off such amount.  The Bank of Greene County's determination as to the classification of its assets and the amount of its valuation allowance is subject to review by its regulatory agencies, which can order the establishment of additional general or specific loss allowances.  The Bank of Greene County reviews its portfolio monthly to determine whether any assets require classification in accordance with applicable regulations.
 
The Bank primarily has three segments within its loan portfolio that it considers when measuring credit quality: real estate loans, consumer installment and commercial loans.  The real estate portfolio consists of residential, nonresidential, and construction loans.    The inherent risk within the loan portfolio varies depending upon each of these loan types.

The Bank of Greene County’s primary lending activity is the origination of residential mortgage loans, including home equity loans, which are collateralized by residences.   Generally, residential mortgage loans are made in amounts up to 80.0% of the appraised value of the property.  However, The Bank of Greene County will originate residential mortgage loans with loan-to-value ratios of up to 95.0%, with private mortgage insurance.  In the event of default by the borrower, The Bank of Greene County will acquire and liquidate the underlying collateral.    By originating the loan at a loan-to-value ratio of 80% or less or obtaining private mortgage insurance, The Bank of Greene County limits its risk of loss in the even of default.  However, the market values of the collateral may be adversely impacted by declines in the economy.  Home equity loans may have an additional inherent risk if The Bank of Greene County does not hold the first mortgage.  The Bank of Greene County may stand in a secondary position in the event of collateral liquidation resulting in a greater chance of insufficiency to meet all obligations.

Construction lending generally involves a greater degree of risk than other residential mortgage lending.  The repayment of the construction loan is, to a great degree, dependent upon the successful and timely completion of the construction of the subject property within specified cost limits.  The Bank of Greene County completes inspections during the construction phase prior to any disbursements.  The Bank of Greene County limits its risk during the construction as disbursements are not made until the required work for each advance has been completed.  Construction delays may further impair the borrower's ability to repay the loan.

Loans collateralized by nonresidential mortgage loans, and multi-family loans, such as apartment buildings generally are larger than residential loans and involve a greater degree of risk. Commercial mortgage loans often involve large loan balances to single borrowers or groups of related borrowers. Payments on these loans depend to a large degree on the results of operations and management of the properties or underlying businesses, and may be affected to a greater extent by adverse conditions in the real estate market or the economy in general. Accordingly, the nature of nonresidential mortgage loans makes them more difficult for management to monitor and evaluate.

Consumer installment loans generally have shorter terms and higher interest rates than residential mortgage loans. In addition, consumer loans expand the products and services offered by The Bank of Greene County to better meet the financial services needs of its customers.  Consumer loans generally involve greater credit risk than residential mortgage loans because of the difference in the nature of the underlying collateral.  Repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance because of the greater likelihood of damage, loss or depreciation in the underlying collateral. The remaining deficiency often does not warrant further substantial collection efforts against the borrower beyond obtaining a deficiency judgment. In addition, consumer loan collections depend on the borrower's personal financial stability.  Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.

Commercial lending generally involves greater risk than residential mortgage lending and involves risks that are different from those associated with residential and nonresidential mortgage loans lending. Real estate lending is generally considered to be collateral based, with loan amounts based on fixed-rate loan-to-collateral values, and liquidation of the underlying real estate collateral is viewed as the primary source of repayment in the event of borrower default. Although commercial loans may be collateralized by equipment or other business assets, the liquidation of collateral in the event of a borrower default is often an insufficient source of repayment because equipment and other business assets may be obsolete or of limited use, among other things. Accordingly, the repayment of a commercial loan depends primarily on the creditworthiness of the borrower (and any guarantors), while liquidation of collateral is a secondary and often insufficient source of repayment.

 
 

 

Loan balances by internal credit quality indicator as of September 30, 2011 are shown below.
(in thousands)
 
Performing
   
Watch
   
Special Mention
   
Substandard
   
Total
 
Residential mortgage
  $ 177,166     $ 1,216     $ ---     $ 3,854     $ 182,236  
Nonresidential mortgage
    66,163       322       598       2,331       69,414  
Residential construction & land
    3,391       ---       ---       ---       3,391  
Commercial construction
    1,496       ---       250       ---       1,746  
Multi-family
    4,983       ---       433       573       5,989  
Home equity
    25,007       54       ---       102       25,163  
Consumer installment
    3,810       ---       ---       23       3,833  
Commercial loans
    18,956       261       328       707       20,252  
Total gross loans
  $ 300,972     $ 1,853     $ 1,609     $ 7,590     $ 312,024  

Loan balances by internal credit quality indicator as of June 30, 2011 are shown below.
(in thousands)
 
Performing
   
Watch
   
Special Mention
   
Substandard
   
Total
 
Residential mortgage
  $ 176,615     $ 1,782     $ 95     $ 3,120     $ 181,612  
Nonresidential mortgage
    59,633       1,017       602       2,608       63,860  
Residential construction & land
    3,718       ---       ---       13       3,731  
Commercial construction
    1,789       ---       ---       225       2,014  
Multi-family
    5,036       ---       434       578       6,048  
Home equity
    25,446       64       ---       49       25,559  
Consumer installment
    3,960       7       ---       41       4,008  
Commercial loans
    17,149       274       680       685       18,788  
Total gross loans
  $ 293,346     $ 3,144     $ 1,811     $ 7,319     $ 305,620  

The Company had no loans classified Doubtful or Loss at September 30, 2011 or June 30, 2011.

Nonaccrual Loans

Management places loans on nonaccrual status once the loans have become 90 days or more delinquent.  Nonaccrual is defined as a loan in which collectability is questionable and therefore interest on the loan will no longer be recognized on an accrual basis.  A loan is not placed back on accrual status until the borrower has demonstrated the ability and willingness to make timely payments on the loan.    A loan does not have to be 90 days delinquent in order to be classified as nonaccrual.   Nonaccrual loans consisted primarily of loans secured by real estate at September 30, 2011 and June 30, 2011.  While the Bank makes every reasonable effort to work with the borrowers to collect amounts due, the number of loans in process of foreclosure has grown substantially over the past several years.  This growth has been the result of adverse changes within the economy and increases in local unemployment.   The growth is also due in part to the extended length of time required to meet all of the legal requirements mandated by New York State law prior to a foreclosure sale, which may be in excess of two years.   Loans on nonaccrual status totaled $7.3 million at September 30, 2011 of which $3.0 million were in the process of foreclosure and an additional $787,000 were making payments pursuant to forbearance agreements.  Under the forbearance agreements, the customers have made arrangements with the Bank to bring the loans current over a specified period of time (resulting in an insignificant delay in repayment).  During this period, the Bank has agreed not to continue foreclosure proceedings.  Of the remaining $3.5 million in nonaccrual loans, $1.6 million were less than 90 days past due, or were current at September 30, 2011, but have a recent history of delinquency greater than 90 days past due.   These loans will be returned to accrual status once they have demonstrated a history of timely payments.



The following table sets forth information regarding delinquent and/or nonaccrual loans as of September 30, 2011:
(in thousands)
 
30-59 days past due
   
60-89 days past due
   
More than 90 days past due
   
Total past due
   
Current
   
Total Loans
   
Loans on Non-accrual
 
Residential mortgage
  $ 2,395     $ 887     $ 3,021     $ 6,303     $ 175,933     $ 182,236     $ 3,820  
Nonresidential mortgage
       645       100       1,861       2,606         66,808         69,414       2,331  
Residential construction & land
       ---          ---           ---          ---           3,391         3,391          ---  
Commercial construction
      250          ---          ---            250          1,496        1,746         250  
Multi-family
      128          ---        445            573          5,416         5,989         573  
Home equity
        27           54        102            183         24,980        25,163         102  
Consumer installment
        88           13            4            105          3,728          3,833           23  
Commercial loans
          3         637           81            721          19,531         20,252          167  
Total gross loans
  $ 3,536     $ 1,691     $ 5,514     $ 10,741     $  301,283     $ 312,024     $ 7,266  

The following table sets forth information regarding delinquent and/or nonaccrual loans as of June 30, 2011:
(in thousands)
 
30-59 days past due
   
60-89 days past due
   
More than 90 days past due
   
Total past due
   
Current
   
Total Loans
   
Loans on Non-accrual
 
Residential mortgage
  $ 1,766     $ 1,292     $ 2,294     $ 5,352     $ 176,260     $ 181,612     $ 3,074  
Nonresidential mortgage
    1,163         687       1,799       3,649         60,211         63,860       2,171  
Residential construction & land
       ---           ---           13            13         3,718         3,731         13  
Commercial construction
      225           ---           ---          225         1,789         2,014       225  
Multi-family
      128           ---         449          577          5,471         6,048       577  
Home equity
      168           64           43          275        25,284        25,559         49  
Consumer installment
         31           25           13            69          3,939          4,008          41  
Commercial loans
         69         546           82           697         18,091         18,788         144  
Total gross loans
  $ 3,550     $ 2,614     $ 4,693     $ 10,857     $ 294,763     $ 305,620     $ 6,294  

The Bank of Greene County had no accruing loans delinquent more than 90 days as of September 30, 2011 or June 30, 2011.

The table below details additional information related to nonaccrual loans for the three months ended September 30:

(In thousands)
 
2011
   
2010
 
Interest income that would have been recorded if loans had been performing in accordance with original terms
  $ 379     $ 271  
Interest income that was recorded on nonaccrual loans during the fiscal year ended
    67       54  

Impaired Loan Analysis

The Company identifies impaired loans and measures the impairment in accordance with FASB ASC subtopic “Receivables – Loan Impairment.”  Management may consider a loan impaired once it is classified as nonaccrual and when it is probable that the borrower will be unable to repay the loan according to the original contractual terms of the loan agreement or the loan is restructured in a troubled debt restructuring.  It should be noted that management does not evaluate all loans individually for impairment.  The Bank of Greene County considers residential mortgages, home equity loans, smaller commercial loans and installment loans as small, homogeneous loans, which are evaluated for impairment collectively based on historical loan experience and other factors.  In contrast, large commercial mortgage, construction, multi-family and business loans are viewed individually and considered impaired if it is probable that The Bank of Greene County will not be able to collect scheduled payments of principal and interest when due, according to the contractual terms of the loan agreement.  The measurement of impaired loans is generally based on the fair value of the underlying collateral.  The majority of The Bank of Greene County loans, including most nonaccrual loans, are small homogenous loan types adequately supported by collateral.  As a result, the level of impaired loans may only be a portion of nonaccrual loans.  Loans that are delinquent or slow paying may not be impaired, especially small homogenous loan types, due to collateral adequacy.  Management considers the payment status of loans in the process of evaluating the adequacy of the allowance for loan losses among other factors.  Loans that are either delinquent a minimum of 60 days or are on nonaccrual status, and are not individually considered impaired, are either designated as Special Mention or Substandard, and the allocation of the allowance for loan loss is based upon the risk associated with such designation.

The tables below detail additional information on impaired loans for the periods indicated:

   
As of September 30, 2011
   
For the three months ended September 30, 2011
 
(in thousands)
 
Recorded   Investment
   
Unpaid Principal
   
Related    Allowance
   
Average    Recorded   Investment
   
Interest Income Recognized  
 
With no related allowance recorded:
                             
   Residential mortgage
  $ 213     $ 276     $ ---     $ 213     $ ---  
   Nonresidential mortgage
    461       461       ---       461       4  
Total loans with no related allowance
    674       737       ---       674       4  
With an allowance recorded:
                                       
  Residential mortgage
    46       46       2       46       1  
  Nonresidential mortgage
    994       994       156       1,029       6  
  Multi-family
    433       433       160       434       6  
  Commercial loans
    500       500       20       500       9  
Total loans with related allowance
    1,973       1,973       338       2,009       22  
Total impaired loans:
                                       
  Residential mortgage
    259       322       2       259       1  
  Nonresidential mortgage
    1,455       1,455       156       1,490       10  
  Multi-family
    433       433       160       434       6  
  Commercial loans
    500       500       20       500       9  
Total impaired loans
  $ 2,647     $ 2,710     $ 338     $ 2,683     $ 26  

As a result of adopting the guidance issued by FASB regarding “A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring”, the Company reassessed all restructurings that occurred on or after June 30, 2011 for identification as troubled debt restructurings.  The Company identified no loans for which the allowance for loan losses had previously been measured under a general allowance for credit losses methodology that are now considered troubled debt restructurings in accordance with this new guidance.

 
 

 


   
As of June 30, 2011
   
For the three months ended September 30, 2010
 
(in thousands)
 
Recorded Investment
   
Unpaid Principal
   
Related     Allowance
   
Average    Recorded   Investment
   
Interest Income Recognized  
 
With no related allowance recorded:
                             
   Residential mortgage
  $ 213     $ 276     $ ---     $ 213     $ 1  
   Nonresidential mortgage
    462       462       ---       ---       ---  
Total loans with no related allowance
    675       738       ---       213       1  
With an allowance recorded:
                                       
  Residential mortgage
    46       46       2       ---       ---  
  Nonresidential mortgage
    1,255       1,255       292       ---       ---  
  Multi-family
    434       434       160       ---       ---  
  Commercial loans
    500       500       12       ---       ---  
Total loans with related allowance
    2,235       2,235       466       ---       ---  
Total impaired loans:
                                       
  Residential mortgage
    259       322       2       213       1  
  Nonresidential mortgage
    1,717       1,717       292       ---       ---  
  Multi-family
    434       434       160       ---       ---  
  Commercial loans
    500       500       12       ---       ---  
Total impaired loans
  $ 2,910     $ 2,973     $ 466     $ 213     $ 1  

Allowance for Loan Losses

The allowance for loan losses is established through a provision for loan losses based on management’s evaluation of the losses inherent in the loan portfolio, the composition of the loan portfolio, specific impaired loans and current economic conditions.  Such evaluation, which includes a review of all loans on which full collectability may not be reasonably assured, considers among other matters, the estimated net realizable value or the fair value of the underlying collateral, economic conditions, payment status of the loan, historical loan loss experience and other factors that warrant recognition in providing for the loan loss allowance.  In addition, various regulatory agencies, as an integral part of their examination process, periodically review The Bank of Greene County’s allowance for loan losses.  Such agencies may require The Bank of Greene County to recognize additions to the allowance based on their judgment about information available to them at the time of their examination.  The Bank of Greene County charges loans off against the allowance for credit losses when it becomes evident that a loan cannot be collected within a reasonable amount of time or that it will cost the Bank more than it will receive, and all possible avenues of repayment have been analyzed, including the potential of future cash flow, the value of the underlying collateral, and strength of any guarantors or co-borrowers.  Generally, consumer loans and smaller business loans (not secured by real estate) in excess of 90 days are charged-off against the allowance for loan losses, unless equitable arrangements are made.   For loans secured by real estate, a charge-off is recorded when it is determined that the collection of all or a portion of a loan may not be collected and the amount of that loss can be reasonably estimated.

 
 

 

The following tables set forth the activity and allocation of the allowance for loan losses by loan category during and at the periods indicated.  The allowance is allocated to each loan category based on historical loss experience and economic conditions.

(In thousands)
 
    Balance June 30, 2011    
   
Charge-offs
   
Recoveries
   
Provision
   
Balance      September 30, 2011       
 
Residential mortgage
  $ 1,767     $ 24     $ ---     $ 316     $ 2,059  
Nonresidential mortgage
    1,859       33       ---       94       1,920  
Residential construction & land
    27       ---       ---       1       28  
Commercial construction
    89       ---       ---       (35 )     54  
Multi-family
    410       ---       ---       2       412  
Home equity
    186       ---       ---       35       221  
Consumer installment
    203       51       18       32       202  
Commercial loans
    528       ---       ---       29       557  
Total
  $ 5,069     $ 108     $ 18     $ 474     $ 5,453  


 
Allowance for Loan Loss
Loans Receivable
 
Ending Balance September 30, 2011 Impairment Analysis
Ending Balance September 30, 2011 Impairment Analysis
(In thousands)
Individually Evaluated
Collectively Evaluated
Individually Evaluated
Collectively Evaluated
Residential mortgage
$2
$2,057
$259
$181,977
Nonresidential mortgage
156
1,764
1,455
67,959
Residential construction & land
---
28
---
3,391
Commercial construction
---
54
---
1,746
Multi-family
160
252
433
5,556
Home equity
---
221
---
25,163
Consumer installment
---
202
---
3,833
Commercial loans
20
537
500
19,752
Total
$338
$5,115
$2,647
$309,377

(In thousands)
 
Balance June 30, 2010         
   
Charge-offs
   
Recoveries
   
Provision
   
Balance      September 30, 2010      
 
Residential mortgage
  $ 1,427     $ ---     $ ---     $ 163     $ 1,590  
Nonresidential mortgage
    1,517       ---       ---       15       1,532  
Residential construction & land
    48       ---       ---       (9 )     39  
Commercial construction
    49       ---       ---       21       70  
Multi-family
    223       ---       ---       11       234  
Home equity
    205       ---       ---       8       213  
Consumer installment
    120       61       19       38       116  
Commercial loans
    435       2       5       106       544  
Total
  $ 4,024     $ 63     $ 24     $ 353     $ 4,338  


 
 

 


 
Allowance for Loan Loss
Loans Receivable
 
Ending Balance June 30, 2011 Impairment Analysis
Ending Balance June 30, 2011 Impairment Analysis
(In thousands)
Individually Evaluated
Collectively Evaluated
Individually Evaluated
Collectively Evaluated
Residential mortgage
$2
$1,765
$259
$181,353
Nonresidential mortgage
292
1,567
1,717
62,143
Residential construction & land
---
27
---
3,731
Commercial construction
---
89
---
2,014
Multi-family
160
250
434
5,614
Home equity
---
186
---
25,559
Consumer installment
---
203
---
4,008
Commercial loans
12
516
500
18,288
Total
$466
$4,603
$2,910
$302,710
 
(6)  Fair Value Measurements and Fair Value of Financial Instruments

Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique.  Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sale transaction on the dates indicated.  The estimated fair value amounts have been measured as of September 30, 2011 and June 30, 2011 and have not been re-evaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates.  As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period-end.

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities.  Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.

 
The FASB ASC Topic on “Fair Value Measurement” established a fair value hierarchy that prioritized the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
 
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
 
Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.
 
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).
 
An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

For assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used are as follows:





 
   
Fair Value Measurements Using
 
September
    Quoted Prices In Active Markets For Identical Assets
    Significant Other Observable Inputs
 
  Significant Unobservable Inputs
 
(In thousands)
30, 2011
(Level 1)
(Level 2)
(Level 3)
Assets:
       
  U.S. Government sponsored enterprises
$21,273
    $---
$21,273
$---
  State and political subdivisions
   6,598
     ---
    6,598
---
  Mortgage-backed securities-residential
 27,676
 20,054
    7,622
---
  Mortgage-backed securities-multi-family
 18,697
 18,697
   ---
---
  Asset-backed securities
        22
        22
   ---
---
  Corporate debt securities
   6,295
   6,295
   ---
---
  Equity securities
      112
      112
   ---
---
Securities available-for-sale
$80,673
$45,180
$35,493
$---

   
Fair Value Measurements Using
 
June
    Quoted Prices In Active Markets For Identical Assets
    Significant Other Observable Inputs
 
  Significant Unobservable Inputs
 
(In thousands)
30, 2011
(Level 1)
(Level 2)
(Level 3)
Assets:
       
  U.S. Government sponsored enterprises
$25,703
$---
$25,703
$---
  State and political subdivisions
   7,062
---
   7,062
---
  Mortgage-backed securities-residential
 28,914
20,842
   8,072
---
  Mortgage-backed securities-multi-family
 21,096
21,096
  ---
---
  Asset-backed securities
        23
       23
  ---
---
  Corporate debt securities
   7,206
  7,206
  ---
---
  Equity securities
      113
      113
  ---
---
Securities available-for-sale
$90,117
$49,280
$40,837
$---

Certain investments that are actively traded and have quoted market prices have been classified as Level 1 valuations.  Other available-for-sale investment securities have been valued by reference to prices for similar securities or through model-based techniques in which all significant inputs are observable and, therefore, such valuations have been classified as Level 2.

In addition to disclosures of the fair value of assets on a recurring basis, FASB ASC Topic on “Fair Value Measurement” requires disclosures for assets and liabilities measured at fair value on a nonrecurring basis, such as impaired assets, in the period in which a re-measurement at fair value is performed.  Loans are generally not recorded at fair value on a recurring basis. Periodically, the Company records nonrecurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Nonrecurring adjustments also include certain impairment amounts for collateral-dependent loans calculated as required by the “Receivables –Loan Impairment” subtopic of the FASB ASC when establishing the allowance for credit losses.  Impaired loans are those loans for which the Company has re-measured impairment generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation amount does not necessarily represent the fair value of the loan. Real estate collateral is typically valued using independent appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace and the related nonrecurring fair value measurement adjustments have generally been classified as Level 3. Estimates of fair value used for other collateral supporting commercial loans generally are based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3.  At September 30, 2011, loans subject to nonrecurring fair value measurement had a gross carrying amount of $2.0 million and fair value of $1.6 million, and consisted of two residential mortgage loans, five nonresidential mortgage loans, one multifamily loan and one commercial loan.  At June 30, 2011, loans subject to nonrecurring fair value measurement had a gross carrying amount of $2.2 million and fair value of $1.8 million, and consisted of two residential mortgage loans, six nonresidential mortgage loans, one multifamily loan and one commercial loan.    Change in fair value of each of the impaired loans for the quarter ended September 30, 2011 was immaterial.  During the quarter ended September 30, 2011, one nonresidential mortgage loan was transferred to foreclosed real estate at its fair value of $230,000.  No other financial assets or liabilities were re-measured during the year on a nonrecurring basis.

The carrying amounts reported in the statements of financial condition for cash and cash equivalents, long term certificate of deposits, accrued interest receivable and accrued interest payable approximate their fair values.  Fair values of securities are based on quoted market prices (Level 1), where available, or matrix pricing (Level 2), which is a mathematical technique, used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices.  The carrying amount of Federal Home Loan Bank stock approximates fair value due to its restricted nature.  Fair values for variable rate loans that reprice frequently, with no significant credit risk, are based on carrying value.  Fair value for fixed rate loans are estimated using discounted cash flows and interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.  Fair values disclosed for demand and savings deposits are equal to carrying amounts at the reporting date.  The carrying amounts for variable rate money market deposits approximate fair values at the reporting date.  Fair values for fixed rate certificates of deposit are estimated using discounted cash flows and interest rates currently being offered in the market on similar certificates.  Fair value for Federal Home Loan Bank borrowings are estimated using discounted cash flows and interest rates currently being offered on similar advances.

The fair value of commitments to extend credit is estimated based on an analysis of the interest rates and fees currently charged to enter into similar transactions, considering the remaining terms of the commitments and the credit-worthiness of the potential borrowers.  At September 30, 2011 and June 30, 2011, the estimated fair values of these off-balance sheet financial instruments were immaterial, and are therefore excluded from the table below.

The carrying amounts and estimated fair value of financial instruments are as follows:

(in thousands)
 
September 30, 2011
   
June 30, 2011
 
   
Carrying
   
Fair
   
Carrying
   
Fair
 
   
Amount
   
Value
   
Amount
   
Value
 
Cash and cash equivalents
  $ 25,177     $ 25,177     $ 9,966     $ 9,966  
Securities available-for-sale
    80,673       80,673       90,117       90,117  
Securities held-to-maturity
    122,085       124,686       124,177       126,205  
Federal Home Loan Bank stock
    1,273       1,273       1,916       1,916  
Net loans
    306,970       319,143       301,046       309,567  
Accrued interest receivable
    2,740       2,740       2,716       2,716  
Deposits
    491,994       492,474       469,897       470,444  
Federal Home Loan Bank borrowings
    12,000       12,601       26,300       26,941  
Accrued interest payable
    100       100       98       98  
 
(7)  Earnings Per Share (“EPS”)

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period.  Diluted earnings per share is computed in a manner similar to that of basic earnings per share except that the weighted-average number of common shares outstanding is increased to include the number of incremental common shares that would have been outstanding under the treasury stock method if all potentially dilutive common shares (such as stock options) issued became vested during the period.  There were no anti-dilutive securities or contracts outstanding during the quarters ended September 30, 2011 and 2010.

         
Weighted Average Number
       
   
            Net Income
   
Of Shares Outstanding
   
     Earnings per     Share
 
Three months ended
                 
September 30, 2011
  $ 1,509,000              
   Basic
            4,145,828     $ 0.36  
   Effect of dilutive stock options
            44,323       (0.00 )
   Diluted
            4,190,151     $ 0.36  
                         
Three months ended
                       
September 30, 2010
  $ 1,324,000                  
   Basic
            4,121,299     $ 0.32  
   Effect of dilutive stock options
            30,783       (0.00 )
   Diluted
            4,152,082     $ 0.32  
 
 
(8)  Dividends

On July 19, 2011, the Board of Directors declared a quarterly cash dividend of $0.175 per share of Greene County Bancorp, Inc.’s common stock.  The dividend, which reflected an annual cash dividend rate of $0.70 cents per share, was unchanged from the dividend declared during the previous quarter. The dividend was payable to stockholders of record as of August 15, 2011, and was paid on September 1, 2011.  It should be noted that Greene County Bancorp, Inc.’s mutual holding company continued to waive receipt of dividends for the current period.
 
(9)  Impact of Recent Accounting Pronouncements

 
In June 2011, the FASB issued an amendment to its guidance on Comprehensive Income which has eliminated the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity and will require it be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The single statement format would include the traditional income statement and the components and total other comprehensive income as well as total comprehensive income. In the two statement approach, the first statement would be the traditional income statement which would be immediately followed by a separate statement which includes the components of other comprehensive income, total other comprehensive income and total comprehensive income.  The amendments in this ASU will be applied retrospectively. For public entities, they are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted. The adoption of these amendments is not expected to have a material effect on our consolidated results of operations or financial position.
 

 
 

 
 
 
(10)  Employee Benefit Plans

Defined Benefit Plan

The components of net periodic pension costs related to the defined benefit pension plan for the three months ended September 30, 2011 and 2010 were as follows:

 
Three months ended September 30,
(in thousands)
2011
2010
Interest cost
$54
$51
Expected return on plan assets
(56)
(55)
Amortization of net loss
9
8
  Net periodic pension cost
$7
$4

The Company does not expect to make any contributions to the defined benefit pension plan during fiscal 2012.

SERP

On June 21, 2010, the Board of Directors of The Bank of Greene County adopted The Bank of Greene County Supplemental Executive Retirement Plan (the “SERP Plan”), effective as of July 1, 2010. The SERP Plan will benefit certain key senior executives of the Bank who are selected by the Board to participate.

The SERP Plan is intended to provide a benefit from the Bank upon retirement, death or disability or voluntary or involuntary termination of service (other than “for cause”). Accordingly, the SERP Plan obligates the Bank to make a contribution to each executive’s account on the first business day of each July and permits each executive to defer up to 50% of his or her base salary and 100% of his or her annual bonus to the SERP Plan, subject to the requirements of Section 409A of the Internal Revenue Code (“Code”). In addition, the Bank may, but is not required to, make additional discretionary contributions to the executives’ accounts from time to time. An executive becomes vested in the Bank’s contributions after 10 calendar years of service following the effective date of the SERP Plan, and is fully vested immediately for all deferral of salary and bonus. However, the Executive will vest in the present value of his or her account in the event of death, disability or a change in control of the Bank or the Company. In the event the executive is terminated involuntarily or resigns for good reason following a change in control, the present value of all remaining Bank contributions is accelerated and paid to the executive’s account, subject to potential reduction to avoid an excess parachute payment under Code Section 280G. In the event of the executive’s death, disability or termination within two years after a change in control, executive’s account will be paid in a lump sum to the executive or his beneficiary, as applicable. In the event executive is entitled to a benefit from the SERP Plan due to retirement or other termination of employment, the benefit will be paid in 10 annual installments.

The net periodic pension costs related to the SERP for the three months ended September 30, 2011 and 2010 were $13,000 consisting primarily of service costs.  Interest costs associated with this plan were not material for the three months ended September 30, 2011 or 2010.  The accumulated obligation for the SERP was $65,600 and $52,500 as of September 30, 2011 and June 30, 2011, respectively.
 
(11)  Stock-Based Compensation

At September 30, 2011, Greene County Bancorp, Inc. had one stock-based compensation plan, which is described more fully in Note 9 of the consolidated financial statements and notes thereto for the year ended June 30, 2011.

The Company recognized $19,000 and $56,000 in compensation costs and related income tax benefit of $6,000 and $17,000 related to the 2008 Option Plan for the quarters ended September 30, 2011 and 2010, respectively.  At September 30, 2011, all granted shares were fully vested, with no remaining compensation cost to be recognized.

A summary of the Company’s stock option activity and related information for its option plans for the three months ended September 30, 2011 and 2010 is as follows:

 
2011
 
2010
     
Weighted Average
     
Weighted Average
     
Exercise
     
Exercise
     
Price
     
Price
 
Shares
 
Per Share
 
Shares
 
Per Share
Outstanding at beginning of year
144,834
 
$12.50
 
171,750
 
$12.36
Exercised
---
 
---
 
(4,333)
 
12.50
Outstanding at period end
144,834
 
$12.50
 
167,417
 
$12.36
Exercisable at period end
144,834
 
$12.50
 
112,587
 
$12.29

The following table presents stock options outstanding and exercisable at September 30, 2011:

Options Outstanding and Exercisable
 
Range of Exercise Prices
 
Number Outstanding
Weighted Average Remaining Contractual Life
Weighted Average Exercise Price
$12.50
144,834
7.00
$12.50

There were no options exercised during the three months ended September 30, 2011. The total intrinsic value of the options exercised during the three months ended September 30, 2010, was approximately $15,000. There were no stock options granted during the three months ended September 30, 2011 or 2010.  The Company had no non-vested options outstanding at September 30, 2011 and 54,830 non-vested options outstanding at September 30, 2010.

Phantom Stock Option Plan and Long-term Incentive Plan

On July 12, 2011, Greene County Bancorp, Inc. (the “Company”) entered into the Greene County Bancorp, Inc. 2011 Phantom Stock Option and Long-term Incentive Plan (the “Plan”), effective as of July 1, 2011, to promote the long-term financial success of the Company and its subsidiaries by providing a means to attract, retain and reward individuals who contribute to such success and to further align their interests with those of the Company’s shareholders.  The Plan is intended to provide benefits to employees and directors of the Company or any subsidiary as designated by the Compensation Committee of the Board of Directors of the Company (“Committee”).   A total of 900,000 phantom stock options will be available for awards under the Plan.  A phantom stock option represents the right to receive a cash payment on the date the award vests in the participant equal to the positive difference between the strike price on the grant date and the book value of a share of the Company stock on the determination date, which is the last day of the plan year that is the end of the third plan year after the grant date of the award, unless otherwise specified by the Committee.  The strike price will be the price established by the Committee, which will not be less than 100% of the book value of a share on a specified date, as determined under generally accepted accounting principles (GAAP) as of the last day of the quarter ending on or immediately preceding the valuation date with adjustments made, in the sole discretion of the Committee, to exclude accumulated other comprehensive income.  During the three months ended September 30, 2011, 235,350 phantom stock options were awarded under the plan.  The Company recognized $67,800 in compensation costs related to the phantom stock option plan during the three months ended September 30, 2011.

(12)  Accumulated Other Comprehensive Income

The components of accumulated other comprehensive income as of September 30, 2011 and June 30, 2011 are presented in the following table:

(in thousands)
     
Accumulated other comprehensive income
September 30, 2011
 
June 30, 2011
  Unrealized gains on available-for-sale securities, net of tax
$1,446
 
 $1,238
  Unrealized loss on securities transferred to held-to-maturity, net of tax
       (60)
 
        (70)
  Net losses and past service liability for defined benefit plan, net of tax
     (645)
 
      (649)
Accumulated other comprehensive income
   $741
 
   $519
       
 
(13)  Subsequent events

On October 16, 2011, the Board of Directors declared a quarterly cash dividend of $0.175 per share on Greene County Bancorp, Inc.’s common stock.  The dividend reflects an annual cash dividend rate of $0.70 per share, which was the same as the dividend declared during the previous quarter.  The dividend will be payable to stockholders of record as of November 15, 2011, and will be paid on December 1, 2011.  It should be noted that Greene County Bancorp, Inc.’s mutual holding company continues to waive receipt of dividends on the shares it owns.

In June 2011, Greene Properties Holding, Ltd. was formed as a New York corporation that has elected under the Internal Revenue Code to be a real estate investment trust.  Greene Properties Holding, Ltd. is a subsidiary of The Bank of Greene County.  Certain mortgages and notes currently held by The Bank of Greene County will be transferred and beneficially owned by Greene Property Holding, Ltd. once all regulatory approvals are received.  The Bank of Greene County will continue to service these loans.  As of September 30, 2011, regulatory approvals were still pending. The Company expects that approvals will be obtained during the quarter ended December 31, 2011.

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operation

Overview of the Company’s Activities and Risks

Greene County Bancorp, Inc.’s results of operations depend primarily on its net interest income, which is the difference between the income earned on Greene County Bancorp, Inc.’s loan and securities portfolios and its cost of funds, consisting of the interest paid on deposits and borrowings. Results of operations are also affected by Greene County Bancorp, Inc.’s provision for loan losses, gains and losses from sales of securities, noninterest income and noninterest expense.  Noninterest income consists primarily of fees and service charges.  Greene County Bancorp, Inc.’s noninterest expense consists principally of compensation and employee benefits, occupancy, equipment and data processing, and other operating expenses. Results of operations are also significantly affected by general economic and competitive conditions, changes in interest rates, as well as government policies and actions of regulatory authorities. Additionally, future changes in applicable law, regulations or government policies may materially affect Greene County Bancorp, Inc.

To operate successfully, the Company must manage various types of risk, including but not limited to, market or interest rate risk, credit risk, transaction risk, liquidity risk, security risk, strategic risk, reputation risk and compliance risk.  While all of these risks are important, the risks of greatest significance to the Company relate to market or interest rate risk and credit risk.

Market risk is the risk of loss from adverse changes in market prices and/or interest rates.  Since net interest income (the difference between interest earned on loans and investments and interest paid on deposits and borrowings) is the Company’s primary source of revenue, interest rate risk is the most significant non-credit related market risk to which the Company is exposed.  Net interest income is affected by changes in interest rates as well as fluctuations in the level and duration of the Company’s assets and liabilities.

Interest rate risk is the exposure of the Company’s net interest income to adverse movements in interest rates.  In addition to directly impacting net interest income, changes in interest rates can also affect the amount of new loan originations, the ability of borrowers and debt issuers to repay loans and debt securities, the volume of loan repayments and refinancings, and the flow and mix of deposits.

Credit risk is the risk to the Company’s earnings and shareholders’ equity that results from customers, to whom loans have been made and to the issuers of debt securities in which the Company has invested, failing to repay their obligations.  The magnitude of risk depends on the capacity and willingness of borrowers and debt issuers to repay and the sufficiency of the value of collateral obtained to secure the loans made or investments purchased.


Special Note Regarding Forward Looking Statements

This quarterly report contains forward-looking statements.  Greene County Bancorp, Inc. desires to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 and is including this statement for the express purpose of availing itself of the protections of the safe harbor with respect to all such forward-looking statements.  These forward-looking statements, which are included in this Management’s Discussion and Analysis and elsewhere in this quarterly report, describe future plans or strategies and include Greene County Bancorp, Inc.’s expectations of future financial results.   The words “believe,” “expect,” “anticipate,” “project,” and similar expressions identify forward-looking statements.  Greene County Bancorp, Inc.’s ability to predict results or the effect of future plans or strategies or qualitative or quantitative changes based on market risk exposure is inherently uncertain.  Factors that could affect actual results include but are not limited to:
(a)  
changes in general market interest rates,
(b)  
general economic conditions, including unemployment rates and real estate values,
(c)  
legislative and regulatory changes,
(d)  
monetary and fiscal policies of the U.S. Treasury and the Federal Reserve,
(e)  
changes in the quality or composition of The Bank of Greene County’s loan portfolio or the consolidated investment portfolios of The Bank of Greene County and Greene County Bancorp, Inc.,
(f)  
deposit flows,
(g)  
competition, and
(h)  
demand for financial services in Greene County Bancorp, Inc.’s market area.

These factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements, since results in future periods may differ materially from those currently expected because of various risks and uncertainties.

Comparison of Financial Condition as of September 30, 2011 and June 30, 2011

ASSETS

Total assets of the Company were $556.4 million at September 30, 2011 as compared to $547.5 million at June 30, 2011, an increase of $8.9 million, or 1.6%.  Securities available for sale and held to maturity amounted to $202.8 million, or 36.4% of assets, at September 30, 2011 as compared to $214.3 million, or 39.1% of assets, at June 30, 2011, a decrease of $11.5 million or 5.4%.   Net loans grew by $6.0 million or 2.0% to $307.0 million at September 30, 2011 as compared to $301.0 million at June 30, 2011.

CASH AND CASH EQUIVALENTS

Total cash and cash equivalents increased to $25.2 million at September 30, 2011 as compared to $10.0 million at June 30, 2011, an increase of $15.2 million.  The level of cash and cash equivalents is a function of the daily account clearing needs and deposit levels as well as activities associated with securities transactions and loan funding.  All of these items can cause cash levels to fluctuate significantly on a daily basis.  Each year at the end of September the Company can see significant fluctuations in cash due to the collection of local school taxes.

SECURITIES

Securities, including both available-for-sale and held-to-maturity issues, decreased $11.5 million or 5.4% to $202.8 million at September 30, 2011 as compared to $214.3 million at June 30, 2011.  Securities purchases totaled $6.0 million during the quarter ended September 30, 2011 and consisted of state and political subdivision securities. Principal pay-downs and maturities amounted to $16.8 million, of which $5.5 million were mortgage-backed securities, $6.3 million were state and political subdivision securities and $5.0 million were U.S. government agency securities. Additionally, during the quarter ended September 30, 2011, corporate debt securities sold totaled $759,000, resulting in a realized gain of $11,000, and unrealized net gains on available for sale securities increased $350,000.  Greene County Bancorp, Inc. holds 20.6% of the securities portfolio at September 30, 2011 in state and political subdivision securities to take advantage of tax savings and to promote Greene County Bancorp, Inc.’s participation in the communities in which it operates. Mortgage-backed securities and asset-backed securities held within the portfolio do not contain sub-prime loans and are not exposed to the credit risk associated with such lending.

   
Carrying Value at
 
(Dollars in thousands)
 
September 30, 2011
   
June 30, 2011
 
   
Balance
   
Percentage
of portfolio
   
Balance
   
Percentage
of portfolio
 
 
Securities available-for-sale:
                       
  U.S. government sponsored enterprises
  $ 21,273       10.5 %   $ 25,703       12.0 %
  State and political subdivisions
    6,598       3.3       7,062       3.3  
  Mortgage-backed securities-residential
    27,676       13.6       28,914       13.5  
  Mortgage-backed securities-multifamily
    18,697       9.2       21,096       9.8  
  Asset-backed securities
    22       0.0       23       0.0  
  Corporate debt securities
    6,295       3.1       7,206       3.3  
Total debt securities
    80,561       39.7       90,004       41.9  
  Equity securities and other
    112       0.1       113       0.1  
Total securities available-for-sale
    80,673       39.8       90,117       42.0  
Securities held-to-maturity:
                               
  U.S. treasury securities
    11,054       5.5       11,062       5.1  
  U.S. government sponsored enterprises
    997       0.5       997       0.5  
  State and political subdivisions
    35,022       17.3       34,933       16.3  
  Mortgage-backed securities-residential
    55,237       27.2       57,347       26.8  
  Mortgage-backed securities-multifamily
    19,346       9.5       19,434       9.1  
  Other securities
    429       0.2       404       0.2  
Total securities held-to-maturity
    122,085       60.2       124,177       58.0  
Total securities
  $ 202,758       100.0 %   $ 214,294       100.0 %

LOANS

Net loans receivable increased to $307.0 million at September 30, 2011 from $301.0 million at June 30, 2011, an increase of $6.0 million, or 2.0%.  The loan growth experienced during the quarter primarily consisted of $5.5 million in nonresidential real estate loans, $624,000 in residential mortgage loans, and $1.3 million in non-mortgage loans, and was partially offset by a $396,000 decrease in home equity loans, a $608,000 decrease in construction and land loans, and a $384,000 increase in the allowance for loan loss.  The continued low interest rate environment and strong customer satisfaction from personal service continued to enhance loan growth.    If long term rates begin to rise, the Company anticipates some slow down in new loan demand as well as refinancing activities.  The Bank of Greene County continues to use a conservative underwriting policy in regard to all loan originations, and does not engage in sub-prime lending or other exotic loan products.  It should be noted however that the Company is subject to the effects of any downturn, and especially, a significant decline in home values in the Company’s markets could have a negative effect on the consolidated results of operations.  A significant decline in home values would likely lead to a decrease in residential real estate loans and new home equity loan originations and increased delinquencies and defaults in both the consumer home equity loan and the residential real estate loan portfolios and result in increased losses in these portfolios.  As of September 30, 2011, declines in home values have been modest in the Company’s market area. However, updated appraisals are obtained on loans when there is a reason to believe that there has been a change in the borrower’s ability to repay the loan principal and interest, generally, when a loan is in a delinquent status.  Additionally, if an existing loan is to be modified or refinanced, generally, an appraisal is ordered to ensure continued collateral adequacy.  During the quarter ended September 30, 2011, properties within several communities within the Company’s market area were either severely damaged or destroyed as a result of Hurricane Irene.  Many of the properties were covered by flood insurance.  The Company is monitoring the affected mortgage loans within its portfolio, evaluating collateral values, disbursing insurance proceeds to the borrower as repairs progress, and monitoring ongoing repayment of the loans.   The Company has evaluated its potential losses that may result from this natural disaster and has made additional provisions to the allowance for loan losses.

   
 
September 30, 2011
June 30, 2011
(Dollars in  thousands)
 
Balance
Percentage
of Portfolio
 
Balance
Percentage
of Portfolio
         
Real estate mortgages:
       
   Residential
$182,236
58.4%
$181,612
59.4%
   Nonresidential
69,414
22.2
63,860
20.9
   Construction and land
5,137
1.7
5,745
1.9
   Multi-family
5,989
1.9
6,048
2.0
Total real estate mortgages
262,776
84.2
257,265
84.2
Home equity loans
25,163
8.1
25,559
8.4
Consumer installment
3,833
1.2
4,008
6.1
Commercial loans
20,252
6.5
18,788
1.3
Total gross loans
312,024
100.0%
305,620
100.0%
Deferred fees and costs
399
 
495
 
Allowance for loan losses
(5,453)
 
(5,069)
 
Total net loans
$306,970
 
$301,046
 

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is established through a provision for loan losses based on management’s evaluation of the risk inherent in the loan portfolio, the composition of the loan portfolio, specific impaired loans and current economic conditions.  Such evaluation, which includes a review of all loans on which full collectability may not be reasonably assured, considers among other matters, the estimated net realizable value or the fair value of the underlying collateral, economic conditions, payment status of the loan, historical loan loss experience and other factors that warrant recognition in providing for an allowance for loan loss.  In addition, various regulatory agencies, as an integral part of their examination process, periodically review The Bank of Greene County’s allowance for loan losses.  Such agencies may require The Bank of Greene County to recognize additions to the allowance based on their judgment about information available to them at the time of their examination.  The Bank of Greene County considers residential mortgages, home equity loans and installment loans to customers as small, homogeneous loans, which are evaluated for impairment collectively based on historical loss experience.  Commercial mortgage and business loans are viewed individually and considered impaired if it is probable that The Bank of Greene County will not be able to collect scheduled payments of principal and interest when due, according to the contractual terms of the loan agreements.  The measurement of impaired loans is generally based on the fair value of the underlying collateral.  The allowance for loan losses is increased by a provision for loan losses (which results in a charge to expense) and recoveries of loans previously charged off and is reduced by charge-offs.


Analysis of allowance for loan losses activity

(Dollars in thousands)
 
Three months ended
 
   
September 30, 2011      
   
September 30, 2010    
 
             
Balance at the beginning of the period
  $ 5,069     $ 4,024  
Charge-offs:
               
     Residential real estate mortgages
    24       ---  
     Nonresidential mortgage
    33       ---  
     Consumer installment
    51       61  
     Commercial loans
    ---       2  
Total loans charged off
    108       63  
                 
Recoveries:
               
     Consumer installment
    18       19  
     Commercial loans
    ---       5  
Total recoveries
    18       24  
                 
Net charge-offs
    90       39  
                 
Provisions charged to operations
    474       353  
Balance at the end of the period
  $ 5,453     $ 4,338  
                 
Ratio of annualized net charge-offs to average loans outstanding
    0.12 %     0.05 %
Ratio of annualized net charge-offs to nonperforming assets
    4.79 %     3.01 %
Allowance for loan losses to nonperforming loans
    75.05 %     86.99 %
Allowance for loan losses to total loans receivable
    1.75 %     1.43 %

Nonaccrual Loans and Nonperforming Assets

Management places loans on nonaccrual status once the loans have become 90 days or more delinquent or sooner if there is a significant reason for management to believe the collectability is questionable and, therefore, interest on the loan will no longer be recognized on an accrual basis.    The Company identifies impaired loans and measures the impairment in accordance with FASB ASC subtopic “Receivables – Loan Impairment.”  Management may consider a loan impaired once it is classified as nonaccrual and when it is probable that the borrower will be unable to repay the loan according to the original contractual terms of the loan agreement or the loan is restructured in a troubled debt restructuring.  It should be noted that management does not evaluate all loans individually for impairment.  The Bank of Greene County considers residential mortgages, home equity loans and installment loans as small, homogeneous loans, which are evaluated for impairment collectively based on historical loan experience and other factors.  In contrast, large commercial mortgage, construction, multi-family and business loans are viewed individually and considered impaired if it is probable that The Bank of Greene County will not be able to collect scheduled payments of principal and interest when due, according to the contractual terms of the loan agreement.  The measurement of impaired loans is generally based on the fair value of the underlying collateral.  The majority of The Bank of Greene County loans, including most nonaccrual loans, are small homogenous loan types adequately supported by collateral.  As a result, the level of impaired loans may only be a portion of the nonaccrual loans.  Loans that are delinquent or slow paying may not be impaired, especially small homogenous loan types, due to collateral adequacy.  Management considers the payment status of loans in the process of evaluating the adequacy of the allowance for loan losses among other factors.  Loans that are either delinquent a minimum of 60 days or are on nonaccrual status, and are not individually considered impaired, are either designated as Special Mention or Substandard, and the allocation of the allowance for loan loss is based upon the risk associated with such designation.  For further discussion and detail regarding the Allowance for Loan Losses and impaired loans please refer to Note (5) Credit Quality of Loans and Allowance for Loan Losses. A loan does not have to be 90 days delinquent in order to be classified as nonperforming.  Foreclosed real estate is considered to be a nonperforming asset. The Bank of Greene County had no accruing loans delinquent more than 90 days at September 30, 2011 or June 30, 2011.

Analysis of Nonaccrual Loans and Nonperforming Assets

   
At
 
(Dollars in thousands)
 
September 30, 2011     
   
June 30, 2011
 
Nonaccrual loans:
           
     Real estate mortgages:
           
           Residential
  $ 3,820     $ 3,074  
           Nonresidential
    2,331       2,171  
           Construction and land
    250       238  
           Multi-family
    573       577  
     Home equity loans
    102       49  
     Consumer installment
    23       41  
     Commercial loans
    167       144  
Total nonaccrual loans
    7,266       6,294  
Accruing loans delinquent 90 days or more
    ---       ---  
Foreclosed real estate:
               
     Residential
    ---       363  
     Nonresidential
    230       80  
     Land
    13       ---  
Foreclosed real estate
    243       443  
Total nonperforming assets
  $ 7,509     $ 6,737  
                 
Total nonperforming assets as a percentage of total assets
    1.35 %     1.23 %
Total nonperforming loans to net loans
    2.37 %     2.09 %


The table below details additional information related to nonaccrual loans for the three months ended September 30:
(In thousands)
 
2011
   
2010
 
Interest income that would have been recorded if loans had been performing in accordance with original terms
  $ 379     $ 271  
Interest income that was recorded on nonaccrual loans during the quarter  ended
    67       54  

The Company identifies impaired loans and measures the impairment in accordance with FASB ASC subtopic “Receivables – Loan Impairment”.  A loan is considered impaired when it is probable that the borrower will be unable to repay the loan according to the original contractual terms of the loan agreement or the loan is restructured in a troubled debt restructuring.








The table below details additional information on impaired loans as of the dates indicated:
(In thousands)
 
September 30, 2011      
   
June 30, 2011
 
Balance of impaired loans, with a valuation allowance
  $ 1,973     $ 2,235  
Allowance relating to impaired loans included in allowance for loan losses
    338       466  
Balance of impaired loans, without a valuation allowance
    674       675  
Average balance of impaired loans for the quarter ended
    2,683       3,050  
Interest income recorded on impaired loans during the quarter ended
    26       35  

Nonperforming assets amounted to $7.5 million at September 30, 2011 and $6.7 million as of June 30, 2011, an increase of approximately $771,000 or 11.4% and total impaired loans amounted to $2.6 million at September 30, 2011 compared to $2.9 million at June 30, 2011, a decrease of $263,000.  This growth has been the result of adverse changes within the economy and increases in local unemployment.   Loans on nonaccrual status totaled $7.3 million at September 30, 2011 of which $3.0 million were in the process of foreclosure and an additional $787,000 were making payments pursuant to forbearance agreements.  Under the forbearance agreements, the customers have made arrangements with the Bank to bring the loans current over a specified period of time (resulting in an insignificant delay in repayment).  During this period, the Bank has agreed not to continue foreclosure proceedings.  Of the remaining $3.5 million in nonaccrual loans, $1.6 million were less than 90 days past due, or were current at September 30, 2011, but have a recent history of delinquency greater than 90 days past due.   These loans will be returned to accrual status once they have demonstrated a history of timely payments.  While the Bank makes every reasonable effort to work with the borrowers to collect amounts due, the number of loans in process of foreclosure has grown substantially over the past several years.  The growth in nonperforming assets is also due in part to the extended length of time required to meet all of the legal requirements mandated by New York State law prior to a foreclosure sale, which may be in excess of two years.  The majority of The Bank of Greene County loans, including most nonaccrual loans as of September 30, 2011, are small homogenous loan types adequately supported by collateral.  As a result, the level of impaired loans may only be a portion of nonaccrual loans.  Loans that are delinquent or slow paying may not be impaired, especially small homogenous loan types, due to collateral adequacy.  These loans are included in total nonperforming assets.

DEPOSITS

Total deposits increased to $492.0 million at September 30, 2011 from $469.9 million at June 30, 2011, an increase of $22.1 million, or 4.7%.  This increase was primarily the result of an increase of $18.8 million in balances at the Company’s Commercial Bank subsidiary due primarily to the annual collection of taxes by several local school districts.  Interest bearing checking accounts (NOW accounts) increased $19.9 million or 13.9% to $163.3 million at September 30, 2011 as compared to $143.4 million at June 30, 2011.  Savings and money market deposits increased $2.2 million and $5.8 million, respectively between June 30, 2011 and September 30, 2011.   Noninterest bearing deposits increased $1.4 million to $50.7 million at September 30, 2011.  Partially offsetting these increases was a $7.2 million decrease in certificates of deposit balances between June 30, 2011 and September 30, 2011.

(Dollars in thousands)
At        
Sept. 30, 2011
Percentage
of Portfolio
At        
June 30, 2011
Percentage
of Portfolio
 
         
Noninterest bearing deposits
$50,740
       10.3%
$49,313
10.5%
Certificates of deposit
84,287
    17.1
91,549
19.5
Savings deposits
114,100
    23.2
111,851
23.8
Money market deposits
79,587
    16.2
73,795
15.7
NOW deposits
163,280
    33.2
143,389
30.5
Total deposits
$491,994
     100.0%
$469,897
100.0%



BORROWINGS

At September 30, 2011, The Bank of Greene County had pledged approximately $161.3 million of its residential mortgage portfolio as collateral for borrowing at the Federal Home Loan Bank (“FHLB”).   The maximum amount of funding available from the FHLB through either overnight advances or term borrowings was $116.5 million at September 30, 2011, of which $12.0 million in term borrowings were outstanding at September 30, 2011.  There were no overnight borrowings outstanding at September 30, 2011.   Interest rates on overnight borrowings are determined at the time of borrowing.  Term borrowings consisted of $7.0 million of fixed rate, fixed term advances with a weighted average rate of 3.49% and a weighted average maturity of 19 months.  The remaining $5.0 million borrowing, which carried a 3.64% interest rate and a maturity of 24 months at September 30, 2011, is unilaterally convertible by the FHLB under certain market interest rate scenarios, including three-month LIBOR at or above 7.50%, into replacement advances for the same or lesser principal amount based on the then current market rates.  If the Bank chooses not to accept the replacement funding, the Bank must repay this convertible advance, including any accrued interest, on the interest payment date.

The Bank also pledges securities as collateral at the Federal Reserve Bank discount window for overnight borrowings.  At September 30, 2011, approximately $6.4 million of collateral was available to be pledged against potential borrowings at the Federal Reserve Bank discount window.  There were no balances outstanding with the Federal Reserve Bank at September 30, 2011.

On October 8, 2010, The Bank of Greene County established an unsecured line of credit with Atlantic Central Bankers Bank for $6 million.  The line of credit provides for overnight borrowing and the interest rate is determined at the time of the borrowing.  At September 30, 2011 and 2010 there were no balances outstanding with Atlantic Central Bankers Bank, and there was no activity during the quarters ended September 30, 2011 and 2010.

Scheduled maturities of term borrowings at September 30, 2011 were as follows:
(In thousands)
     
Fiscal year end
     
2012
  $ 3,000  
2013
    1,000  
2014
    6,000  
2015
    2,000  
    $ 12,000  

EQUITY

Shareholders’ equity increased to $49.5 million at September 30, 2011 from $48.1 million at June 30, 2011, as net income of $1.5 million was partially offset by dividends declared and paid of $322,000. Additionally, shareholders’ equity increased $222,000 as a result of an increase in other comprehensive income.  Other changes in equity, totaling a $19,000 increase, were the result of activities associated with the Company’s 2008 Stock Option Plan.


 
 

 

Comparison of Operating Results for the Three Months Ended September 30, 2011 and 2010

Average Balance Sheet

The following table sets forth certain information relating to Greene County Bancorp, Inc. for the quarters ended September 30, 2011 and 2010.  For the periods indicated, the total dollar amount of interest income from average interest earning assets and the resultant yields, as well as the interest expense on average interest bearing liabilities, are expressed both in dollars and rates.  No tax equivalent adjustments were made.  Average balances were based on daily averages.  Average loan balances include non-performing loans.  The loan yields include net amortization of certain deferred fees and costs that are considered adjustments to yields.



(Dollars in thousands)
2011     
2011   
2011   
2010      
2010   
2010    
 
Average   
Interest
Average
Average   
Interest
Average
 
Outstanding
Earned/
Yield/  
Outstanding
Earned/
Yield/  
 
Balance   
Paid   
Rate   
Balance   
Paid   
Rate   
Interest earning assets:
           
   Loans receivable, net1
$308,630
$4,468
5.79%
$300,888
$4,537
6.03%
   Securities2
211,277
1,721
  3.26
168,283
1,420
  3.38
   Interest bearing bank balances
           
     and Federal funds
2,925
1
  0.14
4,177
2
  0.19
   FHLB stock
1,760
15
  3.41
1,611
17
  4.22
       Total interest earning assets
524,592
6,205
  4.73%
474,959
5,976
  5.03%
Cash and due from banks
7,468
   
7,244
   
Allowance for loan losses
(5,137)
   
(4,094)
   
Other non-interest earning assets
19,348
   
18,189
   
     Total assets
$546,271
   
$496,298
   
             
Interest bearing liabilities:
           
   Savings and money market deposits
$190,369
$294
  0.62%
$161,034
$298
  0.74%
   NOW deposits
144,792
222
  0.61
125,702
238
  0.76
   Certificates of deposit
87,685
371
  1.69
97,505
494
  2.03
   Borrowings
22,834
119
  2.08
20,423
149
  2.92
      Total interest bearing liabilities
445,680
1,006
  0.90%
404,664
1,179
  1.16%
Non-interest bearing deposits
48,360
   
44,012
   
Other non-interest bearing liabilities
3,587
   
2,375
   
Shareholders’ equity
48,644
   
45,247
   
     Total liabilities and equity
$546,271
   
$496,298
   
             
Net interest income
 
$5,199
   
$4,797
 
             
Net interest rate spread
   
3.83%
   
3.87%
             
Net Earning Assets
$78,912
   
$70,295
   
             
Net interest margin
   
3.96%
   
4.04%
             
Average interest earning assets to
           
average interest bearing liabilities
   
117.71%
   
117.37%

_____________________________________________
1Calculated net of deferred loan fees and costs, loan discounts, and loans in process.
2Includes tax-free securities, mortgage-backed securities, asset-backed securities and long term certificates of deposit.

 
 

 

Rate / Volume Analysis

The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected Greene County Bancorp, Inc.’s interest income and interest expense during the periods indicated.  Information is provided in each category with respect to:
(i)  
Change attributable to changes in volume (changes in volume multiplied by prior rate);
(ii)  
Change attributable to changes in rate (changes in rate multiplied by prior volume); and
(iii)  
The net change.
The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.

 
Three Months
Ended September 30,
(In thousands)
2011 versus 2010
       
 
Increase/(Decrease)
Total      
 
                       Due to
Increase/
Interest-earning assets:
Volume
Rate        
(Decrease)
 Loans receivable, net1
$115
$(184)
($69)
 Securities2
353
(52)
301
 Federal funds
0
0
0
 Interest-bearing bank balances
(1)
0
(1)
 FHLB stock
1
(3)
(2)
Total interest earning assets
468
(239)
229
       
Interest-bearing liabilities:
     
   Savings and money market deposits
49
(53)
(4)
   NOW deposits
34
(50)
(16)
   Certificates of deposit
(46)
(77)
(123)
   Borrowings
16
(46)
(30)
Total interest bearing liabilities
53
(226)
(173)
Net interest income
$415
($13)
$402
__________________________________________
1 Calculated net of deferred loan fees, loan discounts, and loans in process.
2 Includes tax-free securities, mortgage-backed securities,  asset-backed securities and long term certificates of deposit.

GENERAL

Return on average assets and return on average equity are common methods of measuring operating results.  Annualized return on average assets increased to 1.10% for the quarter ended September 30, 2011 as compared to 1.07% for the quarter ended September 30, 2010.  Annualized return on average equity increased to 12.41% for the quarter ended September 30, 2011 as compared to 11.70% for the quarter ended September 30, 2010.  The increase in return on average assets and return on average equity was primarily the result of higher net interest income and noninterest income, partially offset by higher noninterest expense. Net income amounted to $1.5 million for the quarter ended September 30, 2011 as compared to $1.3 million for the prior year period, an increase of $185,000 or 14.0%.  Average assets increased $50.0 million, or 10.1% to $546.3 million for the quarter ended September 30, 2011 as compared to $496.3 million for the quarter ended September 30, 2010.  Average equity increased $3.4 million, or 7.5%, to $48.6 million for the quarter ended September 30, 2011 as compared to $45.2 million for the quarter ended September 30, 2010.

 
 

 

INTEREST INCOME

Interest income amounted to $6.2 million for the quarter ended September 30, 2011 as compared to $6.0 million for the quarter ended September 30, 2010, an increase of $229,000 or 3.8%.  The increase in loan and securities volumes had the greatest impact on interest income when comparing the quarters ended September 30, 2011 and 2010.  This increase in volume was offset by a decline in yields on securities and loans. Average loan balances increased $7.7 million while the yield on loans decreased 24 basis points when comparing the quarters ended September 30, 2011 and 2010.   Average securities increased $43.0 million when comparing the quarters ended September 30, 2011 and 2010. The yield on such securities decreased 12 basis points during this same period.
 
 
INTEREST EXPENSE

Interest expense amounted to $1.0 million for the quarter ended September 30, 2011 as compared to $1.2 million for the quarter ended September 30, 2010, a decrease of $173,000 or 14.7%.  Decreases in rates on interest-bearing liabilities contributed to the decrease in overall interest expense.  As illustrated in the rate/volume table, interest expense was reduced $226,000 due to a 26 basis point decrease in the average rate on interest-bearing liabilities, which was partially offset by an increase in interest expense of $53,000 due to a $41.0 million increase in the average balance of interest-bearing liabilities.  The average rate paid on NOW deposits decreased 15 basis points when comparing the quarters ended September 30, 2011 and 2010, and the average balance of such accounts grew by $19.1 million. The average balance of savings and money market deposits increased by $29.3 million and the rate paid decreased by 12 basis points when comparing the quarters ended September 30, 2011 and 2010. The average balance of certificates of deposit decreased by $9.8 million, and the average rate paid decreased by 34 basis points when comparing the quarters ended September 30, 2011 and 2010.    The average balance on borrowings increased $2.4 million and the rate decreased 84 basis points when comparing the quarters ended September 30, 2011 and 2010.

NET INTEREST INCOME

Net interest income increased $402,000 to $5.2 million for the quarter ended September 30, 2011 as compared to $4.8 million for the quarter ended September 30, 2010.  Net interest spread decreased 4 basis points to 3.83% as compared to 3.87% when comparing the quarters ended September 30, 2011 and 2010, respectively.  Net interest margin decreased 8 basis points to 3.96% for the quarter ended September 30, 2011 as compared to 4.04% for the quarter ended September 30, 2010.  The increase in average loan balances, partially offset by the narrowing of the net interest spread and margin, led to an increase in net interest income when comparing the quarters ended September 30, 2011 and 2010.

Due to the large portion of fixed rate residential mortgages in the Company’s asset portfolio, interest rate risk is a concern and the Company will continue to monitor the situation and attempt to adjust the asset and liability mix as much as possible to take advantage of the benefits and reduce the risks or potential negative effects of a rising rate environment.  Management attempts to mitigate the interest rate risk through balance sheet composition.  Several strategies are used to help manage interest rate risk such as maintaining a high level of liquid assets such as short-term federal funds sold and various investment securities and maintaining a high concentration of less interest-rate sensitive and lower-costing core deposits.


PROVISION FOR LOAN LOSSES

Management continues to closely monitor asset quality and adjust the level of the allowance for loan losses when necessary.  The amount recognized for the provision for loan losses is determined by management based on its ongoing analysis of the adequacy of the allowance for loan losses.  During the quarters ended September 30, 2011 and 2010, the Company increased the level of allowance for loan losses due to an increase in the amount of nonperforming assets and loan charge-offs resulting from a decline in the overall economy, and an increase in local unemployment. Also, during the quarter ended September 30, 2011, the Company increased its provision for loan losses as a result of flood damage caused by Hurricane Irene within several of the communities within its market area.  The Company continues to assess the impact on its loan portfolio from this natural disaster and monitor the credit quality of the affected loans.   As a result, the provision for loan losses amounted to $474,000 and $353,000 for the quarters ended September 30, 2011 and 2010, respectively, an increase of $121,000 or 34.3%. Continued increases in non-performing assets and loan charge-offs have resulted in an increase in the level of allowance for loan losses to total loans receivable to 1.75% as of September 30, 2011 as compared to 1.66% as of June 30, 2011.  Nonperforming loans amounted to $7.3 million and $6.3 million at September 30, 2011 and June 30, 2011, respectively, an increase of $1.0 million or 15.9%.  Net charge-offs amounted to $90,000 and $39,000 for the quarters ended September 30, 2011 and 2010, respectively, an increase of $51,000.   At September 30, 2011, nonperforming assets were 1.35% of total assets and nonperforming loans were 2.37% of net loans.   The Company has not been an originator of “no documentation” mortgage loans and the loan portfolio does not include any mortgage loans that the Company classifies as sub-prime.

NONINTEREST INCOME

Noninterest income increased $114,000 or 10.4% to $1.2 million for the quarter ended September 30, 2011 as compared to $1.1 million for the quarter ended September 30, 2010, which was primarily due to an increase in service charges on deposit accounts and debit card fees of $49,000 and $41,000, respectively, resulting from continued growth in the number of deposit accounts.

NONINTEREST EXPENSE

Noninterest expense increased $130,000 when comparing the quarters ended September 30, 2011 and 2010 at $3.6 million and $3.5 million, respectively.  This increase was primarily due to an increase of $90,000 in compensation expense, $23,000 in legal and professional fees, $28,000 in service and data processing fees and $81,000 in other expenses.  The increase in legal and professional fees were related to loans in process of foreclosure and increased fees for consulting services related to the implementation of strategic objectives. Included in the increases in service and data processing fees and other expenses are increased costs associated with debit card accounts as well as the recognition of a loss on sale of foreclosed assets of $50,000.  These increases were partially offset by decreases in FDIC insurance premiums of $53,000 and advertising and promotion expenses of $65,000.   The decrease in FDIC insurance premiums was the result of regulatory changes in the method of calculating the premiums.

INCOME TAXES

The provision for income taxes directly reflects the expected tax associated with the pre-tax income generated for the given year and certain regulatory requirements.  The effective tax rate was 33.8% for the quarter ended September 30, 2011, compared to 34.3% for the quarter ended September 30, 2010.

LIQUIDITY AND CAPITAL RESOURCES

Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates or prices such as interest rates, foreign currency exchange rates, commodity prices, and equity prices.  Greene County Bancorp, Inc.’s most significant form of market risk is interest rate risk since the majority of Greene County Bancorp, Inc.’s assets and liabilities are sensitive to changes in interest rates.  Greene County Bancorp, Inc.’s primary sources of funds are deposits and proceeds from principal and interest payments on loans, mortgage-backed securities and debt securities, with lines of credit available through the Federal Home Loan Bank and Atlantic Central Bankers Bank as needed.  While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit outflows, mortgage prepayments, and lending activities are greatly influenced by general interest rates, economic conditions and competition.

Mortgage loan commitments, including construction and land loan commitments, totaled $7.5 million at September 30, 2011.  The unused portion of overdraft lines of credit amounted to $733,000, the unused portion of home equity lines of credit amounted to $7.9 million, and the unused portion of commercial lines of credit and commercial loan commitments amounted to $9.2 million at September 30, 2011.  Greene County Bancorp, Inc. anticipates that it will have sufficient funds available to meet current loan commitments based on the level of cash and cash equivalents as well as the available for sale investment portfolio and borrowing capacity.

The Bank of Greene County and Greene County Commercial Bank met all applicable regulatory capital requirements at September 30, 2011 and June 30, 2011.  Consolidated shareholders’ equity represented 8.9% of total assets at September 30, 2011 and 8.8% of total assets of June 30, 2011.

Item 3.      Quantitative and Qualitative Disclosures About Market Risk

Not applicable to smaller reporting companies.


Item 4.       Controls and Procedures

Under the supervision and with the participation of the Company's management, including its Chief  Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the  Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and in timely altering them to material information relating to the Company (or its consolidated subsidiaries) required to be filed in its periodic SEC filings.
 
There has been no change in the Company's internal control over financial reporting in connection with the quarterly evaluation that occurred during the Company's last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.


 
 

 

Part II.    Other Information
 
 
       Item 1.     Legal Proceedings
                    Greene County Bancorp, Inc. and its subsidiaries are not engaged in any
                    material legal proceedings at the present time.

       Item 1A.   Risk Factors
                    Not applicable to smaller reporting companies.


       Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds
a)  
Not applicable
b)  
Not applicable
No shares repurchased during the quarter ended September 30, 2011.

       Item 3.     Defaults Upon Senior Securities
                    Not applicable

       Item 4.     [Removed and reserved.]
 
 
       Item 5.     Other Information
a)  
Not applicable
b)  
There were no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors during the period covered by this Form 10-Q.

       Item 6.     Exhibits

Exhibits
31.1 Certification of Chief Executive Officer, adopted pursuant to Rule 13a-14(a)/15d-14(a)
31.2 Certification of Chief Financial Officer, adopted pursuant to Rule 13a-14(a)/15d-14(a)
32.1 Statement of Chief Executive Officer, furnished pursuant to U.S.C. Section 1350
32.2 Statement of Chief Financial Officer, furnished pursuant to U.S.C. Section 1350
 
101 The following materials from Greene County Bancorp, Inc. Form 10-Q for the quarter ended September 30, 2011, formatted in Extensible Busiess Reporting Language (XBRL): (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Financial Condition, (iii) Consolidated Statements of Cash Flows and (iv) related notes, tagged as blocks of text.

 
 

 


SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed by the undersigned thereunto duly authorized.


Greene County Bancorp, Inc.

Date:  November 14, 2011

By: /s/ Donald E. Gibson



Donald E. Gibson
President and Chief Executive Officer





Date:  November 14, 2011

By: /s/ Michelle M. Plummer



Michelle M. Plummer, CPA
Executive Vice President, Chief Financial Officer and Chief Operating Officer



 
 

 

EXHIBIT 31.1

Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Donald E. Gibson, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Greene County Bancorp, Inc.;

2.
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the consolidated financial statements, and other financial information included in this  quarterly report, fairly present in all material respects the consolidated financial condition, consolidated results of operations and consolidated cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: November 14, 2011                                                                           /s/ Donald E. Gibson 
            Donald E. Gibson
 
        President and Chief Executive Officer

 
 

 

EXHIBIT 31.2

Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Michelle M. Plummer, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Greene County Bancorp, Inc.;

2.
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the consolidated financial statements, and other financial information included in this  quarterly report, fairly present in all material respects the consolidated financial condition, consolidated results of operations and consolidated cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2011                                                                           /s/ Michelle M. Plummer 
            Michelle M. Plummer, CPA
 
        Executive Vice President, Chief Financial Officer and Chief Operating Officer

 
 
 
 
EXHIBIT 32.1

Statement of Chief Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



Donald E. Gibson, President and Chief Executive Officer, of Greene County Bancorp, Inc. (the “Company”) certifies in his capacity as an officer of the Company that he has reviewed the Quarterly Report of the Company on Form 10-Q for the quarter ended September 30, 2011 and that to the best of his knowledge:

1.  
the report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.  
the information contained in the report fairly presents, in all material respects, the consolidated financial condition and consolidated results of operations of the Company as of the dates and for the periods covered by the report.

This statement is authorized to be attached as an exhibit to the report so that this statement will accompany the report at such time as the report is filed with the Securities and Exchange Commission pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 USC 1350.  It is not intended that this statement be deemed to be filed for purposes of the Securities Exchange Act of 1934, as amended.


Date: November 14, 2011                                                                           _/s/ Donald E. Gibson 
               Donald E. Gibson
 
           President and Chief Executive Officer



 
 

 

EXHIBIT 32.2

Statement of Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



Michelle M. Plummer, Chief Financial Officer, of Greene County Bancorp, Inc. (the “Company”) certifies in her capacity as an officer of the Company that he or she has reviewed the Quarterly Report of the Company on Form 10-Q for the quarter ended September 30, 2011 and that to the best of her knowledge:

1.  
the report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.  
the information contained in the report fairly presents, in all material respects, the consolidated financial condition and consolidated results of operations of the Company as of the dates and for the periods covered by the report.


This statement is authorized to be attached as an exhibit to the report so that this statement will accompany the report at such time as the report is filed with the Securities and Exchange Commission pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 USC 1350.  It is not intended that this statement be deemed to be filed for purposes of the Securities Exchange Act of 1934, as amended.


Date: November 14, 2011                                                                           /s/ Michelle M. Plummer 
            Michelle M. Plummer, CPA
 
        Executive Vice President, Chief Financial Officer and Chief Operating Officer